Misrepresentation, Non-Disclosure and Breach ... - Law Commission

(1) Abolition would enable “sharp practice” by consumers. For example, a
consumer should not apply for house insurance without disclosing that
they had received a threat to burn their house down.
(2) Without a duty of disclosure, it would be difficult to grant temporary cover
before a proposal form was completed.
(3) The division between consumers and businesses is artificial; the dividing
line should really be between professionals and non-professionals.
Special rules for consumers would lead to complex law. 8
It recommended retention of the duty but that the insurer should have to
warn the proposer of it.
4.16 However, the insurance market has changed considerably since 1980. It is now
common for insurance to be sold over the telephone or by the internet in a way
that requires policyholders to answer set questions, in some cases with little
opportunity or incentive to disclose additional facts. This point was put to us by
the FOS:
In many sales processes that are conducted over the phone or the
internet it is very difficult for a policyholder to disclose additional facts
even if they are minded so to do. It would seem inequitable to require
the consumer to override the sales process set in place by the insurer in
order to fulfil their legal obligations even if they are reminded of them.
4.17 Even outside telephone and internet sales, the FOS takes the approach that
consumers do not need to volunteer information. As we explained in Part 3, we
found a case very similar to the one noted in the 1980 report. The complainant
applied for contents insurance without mentioning that her daughter’s ex-partner
had made threats against the family. The ombudsman decided that as no
question had been asked, the insurer could not require the matter to be
disclosed. The claim should be paid.
8
Insurance Law, Non-Disclosure and Breach of Warranty (1980) Law Com No 104, pp 43-5.
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